HMRC has recently set out its upcoming reforms to the R&D Tax Relief schemes that will form part of the next Finance Bill. Alongside some minor legislation updates to address anomalies in the schemes, the reforms as they stand will cause four major changes to the schemes. The first of which could catch out start-ups, smaller companies and those who haven’t claimed recently.
1 - Pre-Notification of Claims
If you haven’t claimed R&D tax relief in the last 3 years, you will be required to pre-notify HMRC of your intent to claim within 6 months of the end of the claim period. This notification will need to be made online, however if a company has not made a claim in any of the past three accounting periods, they do not need to notify HMRC.
Start-up companies and those who might have claimed before, but not in the last three years, need to be aware. The six-month limit applies to the first accounting period – so the ability to go back two years will be impacted if HMRC are not notified.
This change will require those companies with no previous claim experience to be much more agile in identifying and assessing the size of the opportunity before them, e.g:
• Is the work they have undertaken eligible for relief?
• Is there sufficient spend to make a claim worthwhile?
• More importantly, can they undertake this assessment within the six-month timeframe.
2 - Submission of Claims
All claims will have to be submitted digitally. The submissions will have to include a description of the R&D, a breakdown of qualifying costs, details of any R&D agent who has advised on the R&D claim and be signed-off by a senior officer of the company.
Specific details on the new requirements are yet to be published. Zest's claim process has always provided detailed breakdowns and this is a welcomed change as new measures were arguably needed to tackle abuse of the scheme.
3 - Restriction of Overseas Subcontractor and Externally Provided Worker Costs
Expenditure on overseas subcontractors and agency workers will only qualify if it is absolutely necessary for work to be done overseas for non-commercial reasons (i.e. geographical limitations and legal requirements). This is likely to include work such as deep ocean research and clinical trials.
If you currently have overseas operations, please seek advice on how this rule could impact you going forward.
4 - Introduction of Cloud Computing Costs and Pure Mathematics Eligibility
HMRC has confirmed the extension of the scope of qualifying expenditure to include costs of datasets and cloud computing. In the Spring Statement, it was also announced that R&D in pure mathematics will become claimable.
As things stand, the above measures will apply for accounting periods beginning on or after 1st April 2023. The possibility of changes being applied retrospectively is a real concern with the effective date of 1st April 2023 creating a window of opportunity for those looking to abuse the scheme.
Supporting you with R&D tax relief
R&D tax relief changes can be complex and the new legislation is likely to require significant updates to the way claims are currently made. Seeking advice early will be the best way to ensure that your company will continue to be able to access the generous reliefs.
At Zest R&D we specialise in preparing and submitting R&D claims. Our priority is ensuring your R&D tax claim works for you - if you are considering making a claim for R&D tax relief or would like to discuss the status of an existing claim, please don’t hesitate to get in touch.
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Chancellor Jeremy Hunt has announced a series of changes to the UK research and development (R&D) tax relief regime, including a cut to the deduction and credit rates for the SME scheme, the R&D tax credit. The rate of the large company scheme, the R&D expenditure credit (RDEC) will be increased from 13% to 20%, […]